Singapore Market Strategy - UOB Kay Hian 2018-02-13: Positioning In Volatile Times

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Singapore Stocks To Buy Now COMFORTDELGRO CORPORATION LTD C52.SI RAFFLES MEDICAL GROUP LTD BSL.SI SIA ENGINEERING CO LTD S59.SI CDL HOSPITALITY TRUSTS J85.SI ASCENDAS REAL ESTATE INV TRUST A17U.SI

Singapore Market Strategy - Positioning In Volatile Times

• As volatility could remain elevated, we highlight stocks we favour and how we would position to potentially benefit from the volatility.

WHAT’S NEW

Spike in VIX. 

• After a long period of relatively low volatility, VIX has surged to 25.99 (vs mean of 14.42). This report highlights the stocks we would look to buy opportunistically when the market pulls back and how we would position in the current volatile times.

ACTION

FSSTI has retraced 6.3% from YTD peak and we see selective opportunities. 

• Since 3 Jan 18, VIX has surged to 25.99, compared to its mean of 14.42 (since 2013). This is even higher than its +1SD (of 18.2) and this elevated level of VIX was last seen in Aug 15. 
• During the 2015 episode (Greece uncertainties and Renminbi devaluation), VIX surged from 11.95 to 40.74 (from Jul to Aug 15), with a 15% retracement in the FSSTI during that period. Comparatively, the current volatility is not as severe as compared to 2015, and the equity market pull-back, at 6.3% from its YTD peak, is less severe. 
• In our view, the current volatility could offer selective opportunities.

Stocks to buy on weakness. 

• We analyse our Singapore stocks universe on 6 February when the FSSTI was sold down 1.8% (from intra-day high to low). Stocks that bounced significantly from its intra-day low provide an interesting insight into companies that investors have been buying on weakness. 
• Interestingly, the stocks that proved to be the most resilient, with strong buying support, include Venture Corp, SATS, CDL Hospitality Trust, Ascott Residence Trust, and Sembcorp Marine amongst others. These stocks bounced 3.3-6.3% from their respective intra-day lows compared with the FSSTI’s 1.8% decline. 
• Within these stocks, the top three – Venture Corp, SATS and CDL Hospitality Trust – are our key conviction picks and we think that any ensuing market sell-off is an opportunity to accumulate on weakness.

Solid Singapore stocks at great sale prices. 

• We highlight the list of stocks that have retraced significantly from their 52-week highs, some by as much as 28%. Stocks in the bargain list that we favour include ComfortDelGro, Raffles Medical, and SIA Engineering.

Selected opportunities in S-REITS. 

• The S-REITS have retraced 6-16% over their YTD highs on fears that interest rates could rise further than anticipated due to inflationary pressures. Whilst some profit taking is inevitable after the strong run of S-REITS in 2017, we believe there are selected stocks that could be oversold. 
• Within the S-REITS segment, we favour hospitality, office, industrial and retail. Our key picks include CDL Hospitality Trust, CapitaLand Commercial Trust and Ascendas REIT.

Look beyond the noise. 

• Beyond the near-term market noise and trading gyrations, we remain constructive on the Singapore equity market. This is on the back of a pick-up in earnings growth that could see valuations stretch as current valuations are inexpensive.
• We urge investors to look beyond the noise and consider investment themes such as: 
  1. Multi-year growth drivers – Venture Corp, Cityneon, Raffles Medical Group and Citic Envirotech. 
  2. Reflation picks – City Developments, Keppel Corp, Wing Tai. 
  3. Quality laggards – SingPost, Raffles Medical Group, ComfortDelGro. 
  4. Stocks with earnings upside or specific catalysts – Venture Corp, SATS.

Revised year-end target for FSSTI. 

• We revised our 2018 year-end FSSTI target to 3,530 (previously 3,460) post the recent results. This is based on a 10% discount to longterm mean P/B and long-term mean PE. However, we think the FSSTI target could stretch to 3,730 if earnings could surprise to the upside. The stretched target is based on a blend of long-term mean PE and P/B. 
• We think the discount to long-term P/B mean is fair as 2018F ROE for FSSTI is below its long-term average of 11.0%.

Andrew Chow CFA UOB Kay Hian | Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2018-02-13

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